An unexpected event began near the end of last year: The stock market, which had been going sideways since early 2022, changed direction and began heading up. Soon, it was in bull market territory. The trend is continuing into the new year: The Dow Jones Industrial Index closed above 38,000 for the first time Monday, a record high.
The stock market is a notoriously unpredictable beast, and good luck to you figuring out why it’s behaving in a particular way.
Is it the Trump Trade, as a Wall Street analyst claimed, an assumption that the former president could once again find himself in the White House a year from now?
Maybe. Maybe not. The stock market is a notoriously unpredictable beast, and good luck to you figuring out why it’s behaving in a particular way.
But here are two things you need to know. While it’s good news for President Joe Biden, the stock market’s rise this far in advance of the election can’t predict the winner of the presidential race in November. And, yes, candidate Donald Trump will try to take credit for the stock market’s rising.
Don’t fall for it.
Studies show the stock market tends to go up in presidential election years — and even more so in the year before an election. Why this is so is the subject of some debate, though many, understandably, believe that incumbent presidents, eager to boost their own re-elections, govern in a way that they hope will boost the overall economy.
It’s common to say that “the stock market is not the economy,” but that’s not quite right. It’s more accurate to say that “the stock market is a part of the American economy.” A market that’s up is one that leads to an economy with everything from greater consumer spending — most likely because investment gains make Americans, a majority of whom hold investments in the stock market, feel more financially flush — to slightly higher employment and pay. But it’s not all good. There is a downside: As the wealthier are more likely to own stocks, such rises are also associated with increases in wealth inequality.
This gives Trump room to bluster — and bluster he does. A professional salesman, if nothing else, he can always find the angle that shows the right solution is one Donald Trump.
This go-round, he has proclaimed he believes the only reason the stock market is on an upswing is — wait for it — that “I’m leading” in the polls. At the same time, he’s decrying the fact that it’s “making rich people richer” — as if that bothers him. On top of that, he argues that a stock market crash is inevitable, and he’d prefer it to happen before he’s elected president because he doesn’t want to be “Herbert Hoover.” And in the same breath he says he believes the stock market will crash if he isn’t reinstalled in the White House.
This is not dissimilar to his contradictory statements during the 2016 presidential election and during his four years in office. During that campaign against former Secretary of State Hillary Clinton, he predicted a stock market crash, but again and again, he took credit for its rise before his inauguration in 2017. Pronouncements about what the market is going to do should always be taken with a grain of salt. These sorts of pronouncements about what the market is going to do should always be taken with a grain of salt, no matter who makes them. Many economists who should have known better predicted the stock market would crash if Trump was elected in 2016, only to see the exact opposite happen. (Trump, who never learns anything, repeatedly made the same dire predictions about what would happen to the market if Biden won in 2020. Once again, the opposite happened.) So why are some on Wall Street speculating about the Trump Trade? Think of it as wish-fulfillment meeting a self-referencing loop. Many most likely do believe a Republican would be a better steward of the economy, a traditional belief that doesn’t actually have much basis in reality but is still held by many, not just those on Wall Street. Those folks recall that Trump cut taxes on the wealthiest Americans by not a small amount. “They view Donald Trump by and large as benign to somewhat beneficial to the economy and business,” as his former communications head and longtime Wall Street investor, Anthony Scaramucci, recently told The Hill. And at the same time, the investor class is squealing over Biden’s steps to make the economy work better for the mass of Americans by cracking down on financial services junk fees in areas from banking to retirement savings to tackling monopolies. CNBC’s Jim Cramer recently claimed that Lina Khan, chairperson of the Federal Trade Commission, has been a “one-woman wrecking crew” for American stock portfolios. Trump, on the other hand, for all his bluster, adopted a seemingly anything-goes attitude favoring big-business positions from the financial sector to labor regulation. Yet, the better the economy, the more likely the incumbent is to win. And, for now, most signs are pointing in a positive direction. Consumer sentiment and market returns are up, while unemployment is low and inflation is down. Good for Biden? It sure seems quite possible. But we all could stand to take a deep breath. There’s a long time to go between now and November.
Helaine Olen
Helaine R. Olen is the author of "Pound Foolish: Exposing the Dark Side of the Personal Finance Industry" and a co-author of "The Index Card: Why Personal Finance Doesn't Have to Be Complicated." She has been a columnist for The Washington Post and Slate, and her work has appeared in numerous other publications, including The New York Times and The Atlantic. She is managing editor of the American Economic Liberties Project. 
